• Alex Pettee, CFA

Housing Shortage Deepens • Stocks Mixed • Crypto Turbulence

Summary

  • U.S. equity markets finished mostly lower Tuesday as lukewarm economic data pulled the 10-Year Treasury Yield - and inflation expectations - back down to the lowest closing-level in nearly a month.

  • Following gains of 1.0% yesterday, the S&P 500 finished lower by 0.2% today while the Mid-Cap 400 declined by 0.7% and the Small-Cap 600 dipped 1.1%.

  • Real estate equities were mixed today as the Equity REIT Index finished flat with 10 of 19 property sectors in positive territory while the Mortgage REIT Index declined by 0.9%.

  • Homebuilders were higher on data showing that the substantial imbalance between robust housing demand and historically low housing supply pushed home values higher at the fastest rate in at least two decades.

  • Despite the worsening housing shortage, new home construction in the United States moderated from historically-strong levels. New Home Sales fell in April by nearly 6%, but this was still nearly 50% higher from last year.

Real Estate Daily Recap

U.S. equity markets finished mostly lower Tuesday as lukewarm economic data pulled the 10-Year Treasury Yield - and inflation expectations - back down to the lowest closing-level in nearly a month. Following gains of 1.0% yesterday, the S&P 500 (SPY) finished lower by 0.2% today while the Mid-Cap 400 (MDY) declined by 0.7% and the Small-Cap 600 (SLY) dipped 1.1%. The tech-heavy Nasdaq 100 (QQQ) gained 0.1%. Real estate equities were mixed today as the Equity REIT Index finished flat with 10 of 19 property sectors in positive territory while the Mortgage REIT Index declined by 0.9%.



Seven of the eleven GICS equity sectors finished lower today, dragged on the downside by the Energy (XLE), Utilities (XLU), and Financials (XLF) sectors. The volatility in cryptocurrency markets continued as Bitcoin (BTC-USD) pulled back again today as investors and regulators amplify the debate over the controversial digital token. Homebuilders and the broader Hoya Capital Housing Index were higher on data showing that the substantial imbalance between robust housing demand and historically low housing supply pushed home values higher at the fastest rate in at least two decades.

On that point, the Case Shiller National Home Price Index soared 13.2% year-over-year in March - the 10th straight month of sequentially accelerating home prices - and the highest annual gain since late 2005. The FHFA Home Price Index, also released this morning, showed a 13.9% jump in home values, the highest single month on record. Redfin (RDFN) data last week showed that a record 50% of homes were sold above their listing price over the past month while inventory levels fell to new all-time lows. Nearly half of listed homes received an offer within one week while the average home sold was on the market for just 17 days.

Despite the worsening housing shortage, new home construction in the United States moderated from historically-strong levels, confirming that some builders have been forced to delay incremental projects due to supply chain shortages. The Census Bureau reported this morning that New Home Sales fell in April by nearly 6%, but this was still nearly 50% higher from last year. We've discussed in our Earnings Recap how homebuilders reported the largest backlog on record in Q1 and, due to constraints on materials and labor, simply cannot keep up with demand. The Monthly Supply of Houses in the United States declined to 4.4-months in April, which remains near historic-lows.

Commercial Equity REITs

Today, we published our quarterly State of the REIT Sector. REITs recorded a sequential improvement across all critical metrics in Q1, powering a historic wave of dividend growth in early 2021. The Equity REIT Index has fully-recovered their pandemic declines on a total return basis, but several harder-hit property sectors are far from fully-recovered. REITs' strong balance sheets and access-to-capital prevented the type of shareholder dilution that resulted in a "lost decade" for REITs from the GFC. REITs are no longer "cheap," but that may be a good thing as premium valuations in the public markets have revived the "animal spirits" with a wave of M&A and private-to-public acquisitions in early 2021.

Malls: Authentic Brands, which together through a partnership with with Simon Property (SPG), owns brands such as Brooks Brothers, Aeropostale, Forever 21, Barneys New York, Lucky Brands and Juicy Couture, is reportedly considering an IPO this year which could value the company at about $10B, according to a Bloomberg report. Last week in Mall REITs Fight For Survival, we analyzed Simon's strategy of deploying capital into non-traditional assets outside of the physical mall. Separately, Tanger Outlet (SKT) announced a renewed stock repurchase program for up to $80M of its common shares through May 31, 2023, replacing a previous authorization for roughly $80M that expired in May 2021.


Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.9% today and are now off by 0.6% this week. Commercial mREITs finished lower by 1.5% and are now lower by 0.9% on the week. As discussed in our Earnings Recap, the average residential mREIT reported a 1.1% increase in its tangible BVPS in Q1 from the prior quarter while the average commercial mREIT reported a 0.3% decline in its tangible BVPS in Q1. Residential mREITs pay an average dividend yield of 8.5% while commercial mREITs pay an average yield of 6.9%.

REIT Preferreds & Bonds

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.14% today, on average, and outperformed their respective common stock issues by an average of 0.42%. So far in 2021, REIT Preferred stocks are higher by 7.28% on a price return basis. The average REIT preferred currently pays a dividend yield of 6.08% and trades at a slight premium to par value.

Economic Data This Week

The busy week of economic and housing data continues tomorrow with MBA Mortgage Market data and continues on Thursday with Pending Home Sales as well as Jobless Claims data. On Friday, we'll see the PCE Price Index, the Fed's preferred measure of inflation, as well as Personal Income and Spending data for April.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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